Sensex lags Nifty in 2021 as financial skew, absence of metal stocks weigh

On YTD basis, BSE benchmark is up 1.97%, while Nifty has gained 5.11%

The returns of the 30-share BSE Sensex have lagged that of the NSE Nifty 50 index by 314 basis points (bps) so far this year. The two indices of blue-chip stocks typically move lockstep. However, a larger skew towards financial stocks and absence of metal companies have weighed on the performance of the Sensex.

On a year-to-date (YTD) basis, the index is up 1.97 per cent, while the Nifty has gained 5.11 per cent. In calendar 2020, Sensex had outperformed with returns of 15.8 per cent versus 14.9 per cent of the latter.

Experts say market performance has become more broad-based this year, putting narrow gauges like the Sensex at a disadvantage.

An analysis of sectoral weights shows banks and financial stocks have 42 per cent weight on the Sensex and 35.4 per cent on the Nifty. Stocks in the financial services have been laggards this year with the Nifty Financial Service index gaining less than two per cent YTD.

While at less than 4 per cent, the Nifty still has representation of metal stocks—who have been on a tear this year. JSW Steel and Tata Steel, who form part of the Nifty index, have rallied over 80 per cent each YTD. The Sensex, on the other hand, doesn't have any stocks from the metals space.

In December, Dr Reddy's had replaced Tata Steel in the 30-share index.

“The top weights for both the indices are largely the same. Having said that, the Sensex runs a relatively more concentrated portfolio as it has only 30 stocks. The index tends to do better than the Nifty when select stocks drive the markets, something what we saw during 2017 and 2020,” said an analyst.

The performance of Sensex and the Nifty impacts those investing through the exchange traded fund (ETF) route. Both indices are among the most widely-tracked by domestic ETFs and index funds.

About 17 ETFs with assets of Rs 1.25 trillion (as on March 31) and another 15 index funds with assets of Rs 10,718 crore were benchmarked to the Nifty 50 index. The Sensex is tracked by 9 ETFs with assets of Rs 56,930 crore and five index funds with assets of Rs 2,540 crore, as per data provided by analysts.

Both Sensex and Nifty use free-float market capitalisation to assign weightage to individual stocks. While stocks like JSW Steel and Tata Steel have done well this year, their contribution to Nifty’s gain this year is capped due to low weightages.